Algos Gone Wildhttp://www.businessinsider.com/category/algos-gone-wild
en-usSun, 02 Aug 2015 16:44:47 -0400Sun, 02 Aug 2015 16:44:47 -0400The latest news on Algos Gone Wild from Business Insiderhttp://static3.businessinsider.com/assets/images/bilogo-250x36-wide-rev.pngBusiness Insiderhttp://www.businessinsider.com
http://www.businessinsider.com/robots-colluding-to-manipulate-markets-2015-4WHEN ROBOTS COLLUDE: Computers are adopting a legally questionable means to crush the competitionhttp://www.businessinsider.com/robots-colluding-to-manipulate-markets-2015-4
Sat, 02 May 2015 14:10:00 -0400Shane Ferro
<p><img style="float:right;" src="http://static3.businessinsider.com/image/553ea37f6da811bd5afbe2ec-682-1024/zwei_roboterfreunde_-_two_robot_friends_(14064207029).jpg" alt="Two robot friends" border="0"></p><p>Algorithms can learn to collude.&nbsp;</p>
<p>Two law professors,&nbsp;Ariel Ezrachi of Oxford and Maurice E. Stucke of the University of Tennessee, have a <a href="http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2591874">new working paper</a> on how when computers take get involved in pricing for goods and services (like, say, at Amazon or Uber), the potential for collusion is even greater than when humans are making the prices.&nbsp;</p>
<p>Computers can't have a back-room conversation to fix prices, but they can predict the way that other computers are going to behave. And with that information, they can effectively cooperate with each other in advancing their own profit-maximizing interests. Ezrachi and Stucke explain:&nbsp;</p>
<p style="padding-left: 30px;">Computers may limit competition not only through agreement or concerted practice, but also through more subtle means. For example, this may be the case when similar computer algorithms promote a stable market environment in which they predict each other’s reaction and dominant strategy. Such a digitalised environment may be more predictable and controllable. Furthermore, it does not suffer from behavioral biases and is less susceptive to possible deterrent effects generated through antitrust enforcement.</p>
<p>The problem is that the law hasn't caught up to the technology. The first prosecution for this type of collusion <a href="http://www.newyorker.com/business/currency/when-bots-collude?mbid=social_twitter">wrapped up last month</a>, but the law is still way behind. More frighteningly, it isn't clear if it can ever catch up.</p>
<p>Sometimes, a computer is just a tool used to help humans collude, which theoretically can be prosecuted. But sometimes, the authors find, the computer learns to collude on its own. Can a machine be prosecuted?</p>
<p>In a type of algorithmic collusion the authors call Autonomous Machine, "t<span style="line-height: 1.5em;">he computer executes whichever strategy it deems optimal, based on learning and ongoing feedback collected from the market. Issues of liability, as we will discuss, raise challenging legal and ethical issues." </span></p>
<p><span style="line-height: 1.5em;">How does antitrust law punish a computer? If an algorithm isn't programmed to collude, but ends up doing so independently through machine learning, it isn't clear that the law can stop it.&nbsp;</span></p>
<p><span style="line-height: 1.5em;">(via <a href="http://www.newyorker.com/business/currency/when-bots-collude?mbid=social_twitter">Jill Priluck</a>)</span></p><p><strong>SEE ALSO:&nbsp;<a href="http://www.businessinsider.com/bitcoin-regulated-in-new-york-2015-4" >Bitcoin regulation is coming to New York</a></strong></p>
<p><a href="http://www.businessinsider.com/robots-colluding-to-manipulate-markets-2015-4#comments">Join the conversation about this story &#187;</a></p> <p>NOW WATCH: <a href="http://www.businessinsider.com/robot-carves-michelangelo-statue-unfinished-works-prigioni-2015-3">Watch this robot carve one of Michelangelo's unfinished works</a></p> http://www.businessinsider.com/robots-colluding-to-manipulate-markets-2015-4WHEN ROBOTS COLLUDE: Computers are adopting a legally questionable means to crush the competitionhttp://www.businessinsider.com/robots-colluding-to-manipulate-markets-2015-4
Tue, 28 Apr 2015 07:47:00 -0400Shane Ferro
<p><img style="float:right;" src="http://static3.businessinsider.com/image/553ea37f6da811bd5afbe2ec-682-1024/zwei_roboterfreunde_-_two_robot_friends_(14064207029).jpg" alt="Two robot friends" border="0"></p><p>Algorithms can learn to collude.&nbsp;</p>
<p>Two law professors,&nbsp;Ariel Ezrachi of Oxford and Maurice E. Stucke of the University of Tennessee, have a <a href="http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2591874">new working paper</a> on how when computers take get involved in pricing for goods and services (like, say, at Amazon or Uber), the potential for collusion is even greater than when humans are making the prices.&nbsp;</p>
<p>Computers can't have a back-room conversation to fix prices, but they can predict the way that other computers are going to behave. And with that information, they can effectively cooperate with each other in advancing their own profit-maximizing interests. Ezrachi and Stucke explain:&nbsp;</p>
<p style="padding-left: 30px;">Computers may limit competition not only through agreement or concerted practice, but also through more subtle means. For example, this may be the case when similar computer algorithms promote a stable market environment in which they predict each other’s reaction and dominant strategy. Such a digitalised environment may be more predictable and controllable. Furthermore, it does not suffer from behavioral biases and is less susceptive to possible deterrent effects generated through antitrust enforcement.</p>
<p>The problem is that the law hasn't caught up to the technology. The first prosecution for this type of collusion <a href="http://www.newyorker.com/business/currency/when-bots-collude?mbid=social_twitter">wrapped up last month</a>, but the law is still way behind. More frighteningly, it isn't clear if it can ever catch up.</p>
<p>Sometimes, a computer is just a tool used to help humans collude, which theoretically can be prosecuted. But sometimes, the authors find, the computer learns to collude on its own. Can a machine be prosecuted?</p>
<p>In a type of algorithmic collusion the authors call Autonomous Machine, "t<span style="line-height: 1.5em;">he computer executes whichever strategy it deems optimal, based on learning and ongoing feedback collected from the market. Issues of liability, as we will discuss, raise challenging legal and ethical issues." </span></p>
<p><span style="line-height: 1.5em;">How does antitrust law punish a computer? If an algorithm isn't programmed to collude, but ends up doing so independently through machine learning, it isn't clear that the law can stop it.&nbsp;</span></p>
<p><span style="line-height: 1.5em;">(via <a href="http://www.newyorker.com/business/currency/when-bots-collude?mbid=social_twitter">Jill Priluck</a>)</span></p><p><strong>SEE ALSO:&nbsp;<a href="http://www.businessinsider.com/bitcoin-regulated-in-new-york-2015-4" >Bitcoin regulation is coming to New York</a></strong></p>
<p><a href="http://www.businessinsider.com/robots-colluding-to-manipulate-markets-2015-4#comments">Join the conversation about this story &#187;</a></p> <p>NOW WATCH: <a href="http://www.businessinsider.com/robot-carves-michelangelo-statue-unfinished-works-prigioni-2015-3">Watch this robot carve one of Michelangelo's unfinished works</a></p> http://www.businessinsider.com/high-frequency-trading-fake-quotes-2013-2What It Looks Like When A High Frequency Trading Algo Bombs A Stock With Fake Quoteshttp://www.businessinsider.com/high-frequency-trading-fake-quotes-2013-2
Wed, 06 Feb 2013 13:17:00 -0500Linette Lopez
<p>To buy a stock you must quote the right price. The "right" price is known as the National Best Bid and Offer (NBBO) and is determined, of course, by the market's demand for a stock.</p>
<p>Quote the right price, and you can buy. It's as simple as that.</p>
<p>Until it's not.</p>
<p><a href="http://www.nanex.net/aqck2/4099.html">Nanex</a>, a Chicago-based market research firm, sent us a chart that illustrates what can stand in a trader's way when they're trying to quote the right price.</p>
<p>What's happening below is a snapshot of 1/3 of a second of one stock's life while it's being bombed by a high frequency algorithm. One thousand quotes are firing off at this stock, the&nbsp;<a href="http://finance.yahoo.com/q/ecn?s=XOVR+Order+Book">SPDR BofA ML Crossover Corp Bond ETF</a>, every tenth of a second and then canceling, so no trades are actually being executed.</p>
<p>Those are fake quotes.</p>
<p>The thing is, the market sees those quotes as demand anyway, and it changes the NBBO. So every triangle you see there (color coded for what exchange they're appearing on) is a quote that is impacting the price (NBBO).</p>
<p>The gray background shows how the price is dipping up and down. According to Nanex CEO Eric Hunsader, those black spaces you see (showing a change in price) are happening in intervals so fast that this chart can't even catch them.</p>
<p>"It happens all the time," Hunsader told Business Insider. "It crowds out legitimate prices... it's like SPAM. Maybe one of these guys is a legit offer but there's no way of knowing."</p>
<p>Check it out below, from Nanex:</p>
<p><img src="http://static5.businessinsider.com/image/511299a86bb3f7520f000025-848-600/screen%20shot%202013-02-06%20at%2012.57.22%20pm.png" border="0" alt="nanex hft spray chart" width="848" height="600" /></p>
<p>Pretty wild. What's even wilder is that looking at a chart that shows activity in minute intervals (like say, a Bloomberg terminal) would miss this activity.</p>
<p>Even over one second, the activity doesn't look so bad. Here's another chart from Nanex:</p>
<p><img src="http://static1.businessinsider.com/image/51129ad46bb3f76d1100001c-1224-845/screen%20shot%202013-02-06%20at%201.02.22%20pm.png" border="0" alt="HFT spray over 1 second" width="869" height="600" /></p>
<p>Another problem with this activity is that in gums up computers at exchanges, slowing activity for this stock and any stock that may be listed near it.</p>
<p>"I think it's a high frequency trader, connected to multiple exchanges testing one algorithm, but I could be wrong," said Hunsader.</p>
<p>It's worth noting that back in September, <a href="http://www.finra.org/Newsroom/NewsReleases/2012/P178687">the SEC and FINRA fined a trading firm</a> for this exact activity, except the firm only sprayed out about a dozen quotes. These charts show thousands fo quotes.</p>
<p>"It's like somebody got a fine for pick pocketing, and this guy is robbing the Fed," added Hunsader.</p>
<p>Fair enough.</p><p><a href="http://www.businessinsider.com/high-frequency-trading-fake-quotes-2013-2#comments">Join the conversation about this story &#187;</a></p> http://www.businessinsider.com/high-frequency-trading-cartoons-2013-1Two Funny Cartoons That Perfectly Capture Why People Are Still Worried About High Frequency Tradinghttp://www.businessinsider.com/high-frequency-trading-cartoons-2013-1
Sun, 27 Jan 2013 09:15:00 -0500Linette Lopez
<p>Nothing too crazy has happened in the world of high frequency &nbsp;and algorithmic trading in a while, but that doesn't mean everyone on Wall Street has stopped worried about their discontents.</p>
<p>Perhaps that's why CAST, a software analysis company that services many financial firms, sent us these cartoons as a funny (but gentle) reminder of the problems electronic trading still has to tackle.</p>
<p>Check them out below:</p>
<p><img src="http://static5.businessinsider.com/image/510431d8eab8ea0428000008-591-443/hft-cartoon.png" border="0" alt="hft cartoon" width="591" height="443" /></p>
<p>&nbsp;</p>
<p><img src="http://static4.businessinsider.com/image/5104322cecad04c16e00001e-793/hft-cartoons.png" border="0" alt="hft cartoons" width="591" height="443" /></p><p><a href="http://www.businessinsider.com/high-frequency-trading-cartoons-2013-1#comments">Join the conversation about this story &#187;</a></p> http://www.businessinsider.com/what-a-stupid-algorithm-looks-like-2013-1This Is What Happens When A Buggy Algorithm Goes Crazy On A Stockhttp://www.businessinsider.com/what-a-stupid-algorithm-looks-like-2013-1
Wed, 16 Jan 2013 15:51:00 -0500Linette Lopez
<p>Algorithmic trading, the use of pre-programmed computer codes to place orders and execute trades, is supposed to be the fastest, smartest way to trade in today's stock market.</p>
<p>But sometimes the "bots," as they are affectionately called, get buggy. That's what <a href="http://www.nanex.net/">Nanex</a>, a market research firm, has noticed is happening today.</p>
<p>An algorithm placing orders in <a href="http://finance.yahoo.com/echarts?s=WPCS+Interactive#symbol=wpcs;range=1d;compare=;indicator=volume;charttype=area;crosshair=on;ohlcvalues=0;logscale=off;source=undefined;">WPCS International Incorporated (WPCS)</a>, a communications infrastructure company, has sent/canceled 1.4 million orders since 11am when it turned on.</p>
<p>That's a rate of 200 orders per second.</p>
<p>That means that of all 7771 in the United States' National Market System, WPCS has had the 6th most quotes of the day and is making up 0.62% of all quote volume.</p>
<p>Nanex says that all these quotes are coming through Chicago Board Options Exchange (there are 8 other exchanges quoting this stock).</p>
<p>To put that in perspective, WPCS has an average volume of 25,731 over the last 3 months. <a href="http://www.businessinsider.com/blackboard/apple" class="hidden_link">Apple</a> has an average volume of 21,451,000 over the last 3 months.</p>
<p>So today's orders are unprecedented, as WPCS doesn't usually see that much action.</p>
<p>And this is all stemming from one algorithm. Imagine a Roomba carpet cleaner with a bug in it, backing up and hitting the same spot on a wall over and over again. Now imagine it doing that 200 times a second.</p>
<p>The kicker is, there have only been 9 trades executed in this stock all day.</p>
<p>"It's just 9 trades. This stock is very inactive. Well, except for the 1.7 million canceled orders,"&nbsp;Nanex CEO Eric Hunsader told <a href="http://www.businessinsider.com/blackboard/business-insider" class="hidden_link">Business Insider</a>. "The algo places a buy order at&nbsp; $0.47 which makes it best bid. Then it cancels - which brings CBOE's top bid back down to $0.46 and changes the best bid. 200 times a second."</p>
<p>The best bid is the highest quoted price for a stock (in this case) offered by competing traders looking to buy or sell.</p>
<p>"If it keeps this up, it will surpass SPY and have the highest number of quotes for all stocks," Nanex CEO Hunsader added.</p>
<p>The SPY is the exchange traded fund (basket of stocks) that tracks the S&amp;P 500. It has an average volume of 139,652,000 over the last 3 months.</p>
<p>Basically, this algorithm is stuck and its just spraying a lot of orders around for no reason at all.</p>
<p>Since there are only two prices here ($0.46 and $0.47), the chart below showing this activity isn't that wild. It's just weird.</p>
<p><a href="That%20means%20that%20of%20all%207771%20in%20the%20United%20States'%20National%20Market%20System,%20WPCS%20has%20had%20the%206th%20most%20quotes%20of%20the%20day%20and%20is%20making%20up%200.62%%20of%20all%20quote%20volume.">From Nanex:</a></p>
<p><img src="http://static2.businessinsider.com/image/50f706f1ecad047f2400000b-1071-716/screen shot 2013-01-16 at 2.59.40 pm.png" border="0" alt="nanex weird WPCS" /></p>
<p>&nbsp;</p>
<p>&nbsp;</p><p><a href="http://www.businessinsider.com/what-a-stupid-algorithm-looks-like-2013-1#comments">Join the conversation about this story &#187;</a></p> http://www.businessinsider.com/ted-talk-algorithms-2012-12TED TALK: Algorithms Are Controlling Your Worldhttp://www.businessinsider.com/ted-talk-algorithms-2012-12
Tue, 25 Dec 2012 15:12:00 -0500Linette Lopez
<p>In an insightful <a href="http://www.businessinsider.com/blackboard/ted" class="hidden_link">TED</a> Talk, by tech entrepreneur&nbsp;<a href="http://about.me/slavin">Kevin Slavin</a>&nbsp;on how algorithms have reached across industries (from finance to Hollywood) and into every day life <a href="http://www.dailymotion.com/video/xn8cg8_ted-talk-kevin-slavin-how-algorithms-shape-our-world_tech#.UNoCUaVpI20">(h/t dailymotion)</a>.</p>
<p>Problem is, we may be building whole worlds we don't really understand, and can't control.</p>
<p>One of our favorite quote:</p>
<p style="padding-left: 30px;">Algorithmic trading evolved because institutional traders had the same problems the U.S. Air force had, which is that they're moving these huge positions... and they're moving a million shares of something through the market, and if you do that all at once it's like playing poker and going all in, you tip your hand. So they have to find a way... to break up that big thing into a million little transactions, and the magic and the horror of that is that the same math you use to break up the big thing into a little things can be used to find a million little things and sew them back together and find out what's actually happening in the market. So if you need to picture what's happening in the stock market now... is a bunch of algorithms that are programmed to hide and and bunch of algorithms programmed to go find them and act. And all of that's great... and that's 70% of the operating system formerly known as your pension... what could go wrong? What could go wrong is that a year ago 9% of the entire market just disappears in 5 minute, they call it the <a href="http://www.businessinsider.com/blackboard/flash-crash" class="hidden_link">Flash Crash</a> of 245...and nobody to this day can agree as to what happened, because nobody ordered it, nobody asked for it, no one could control what happened. All they had was a monitor in front of them that had the numbers in front of it, and a button that said STOP... We're writing things that are illegible, we're rendering things illegible.</p>
<p><iframe width="480" height="270" frameborder="0" src="http://www.dailymotion.com/embed/video/xn8cg8"></iframe><br /><a href="http://www.dailymotion.com/video/xn8cg8_ted-talk-kevin-slavin-how-algorithms-shape-our-world_tech" target="_blank">TED Talk: Kevin Slavin: How algorithms shape our...</a> <em>by <a href="http://www.dailymotion.com/TED" target="_blank">TED</a></em></p><p><a href="http://www.businessinsider.com/ted-talk-algorithms-2012-12#comments">Join the conversation about this story &#187;</a></p> http://www.businessinsider.com/knight-capital-faces-glitch-lawsuits-2012-11Knight Capital Discloses A Bunch Of Legal Issues From The Technical Glitch That Almost Sank The Company In Augusthttp://www.businessinsider.com/knight-capital-faces-glitch-lawsuits-2012-11
Fri, 09 Nov 2012 16:19:08 -0500Linette Lopez
<p><img style="float:right;" src="http://static1.businessinsider.com/image/509d71ebecad049e4d000015/knight-capital-nyse-joyce-ceo.png" border="0" alt="knight capital nyse joyce ceo" /></p><p>In August, market maker Knight Capital lost $440 million in half an hour when a new algorithm they had installed in their trading system fired off loads of errant trades.</p>
<p>Now we know what kind of legal fallout the firm faces.</p>
<p>In it's most recent 10Q filing, the company disclosed that it is being investigated by the <a class="hidden_link" href="http://www.businessinsider.com/blackboard/sec">SEC</a>.</p>
<p>Not only that, but a bunch of Knight customers are suing the firm because of losses they incurred when the company's stock price plummeted after the glitch.</p>
<p>In terms of the customer lawsuits, there are two and they're both class-action suits.</p>
<p>Knight believes "that the outcome of each of the matters will not have a material adverse effect on the consolidated financial condition of the Company, although they might be material to operating results for any particular period, depending, in part, upon operating results for that period."</p>
<p><a href="http://xml.10kwizard.com/filing_raw.php?repo=tenk&amp;ipage=8551637#tx400391_13">From the 10Q:</a></p>
<p style="padding-left: 30px;">Legal</p>
<p style="padding-left: 30px;">O<strong>n August 17, 2012, we were named as a defendant in an action entitled Osgood v. Knight Capital Group, Inc. in the U.S. District Court for the Western District of Tennessee. Generally, this putative class action complaint alleges that Knight failed to disclose both its intention to install a new algorithm and the risks associated with such an algorithm.</strong> The plaintiff asserts claims under Section 10(b) and Rule 10b-5 of the federal securities laws and Tennessee statutes and common law, claiming that he and a class of Knight shareholders who purchased the Company&rsquo;s Class A common stock between February 29, 2012 and August 1, 2012, paid an inflated price. The plaintiff has 120 days to serve Knight with the complaint, but has not yet done so.</p>
<p style="padding-left: 30px;">On October 26, 2012, the Company, its Chairman and Chief Executive Officer, Thomas M. Joyce, and its Executive Vice President, Chief Operating Officer and Chief Financial Officer, Steven Bisgay, were named as defendants in an action entitled<strong> Fernandez v. Knight Capital Group, Inc. in the U.S. District Court for the District of New Jersey. Generally, this putative class action complaint alleges that the defendants made material misstatements and/or failed to disclose matters related to the events of August 1.</strong> The plaintiff asserts claims under Sections 10(b) and 20 and Rule 10b-5 of the federal securities laws, claiming that he and a class of the Company&rsquo;s shareholders who purchased the Company&rsquo;s Class A common stock between January 19, 2012 and August 1, 2012 paid an inflated price. The plaintiff has not yet served any of the defendants with the complaint...</p>
<p style="padding-left: 30px;">Regulatory</p>
<p style="padding-left: 30px;"><strong>Subsequent to the August 1 technology issue, the SEC and other regulators commenced on-site examinations of the firm&rsquo;s capital and liquidity condition.</strong> Those onsite examinations have concluded. Further, on or about August 9, 2012, the SEC began an examination, related to the technology issue, of the firm&rsquo;s compliance with SEC Rule 15c3-5 (the &ldquo;Market Access Rule&rdquo;) and other rules and regulations. The SEC issued a formal order of investigation concerning the Company and the firm on August 29, 2012. The Company is cooperating with the regulators.</p>
<p><a class="hidden_link" href="http://www.businessinsider.com/blackboard/business-insider">Business Insider</a> <a href="http://www.businessinsider.com/how-high-frequency-trading-programs-crash-2012-10">spoke to software quality assurance expert Lev Lesokhin after Knight's glitch </a>to understand how it happened. He works for<a href="http://www.castsoftware.com"> CAST,</a> a company that visualizes inherent risks in financial software systems.</p>
<p>Lesokhin told us he believed that the problem at Knight was caused by dead code in their trading software. The new software they installed triggered the dead code and brought it back to life kind of like Frankenstein. That's why the program spit out a bunch of unexpected trades.</p>
<p>"Most IT applications have dead code," Leskhin said. "It's in there just hanging out in the code base but none of the live modules are calling it. If you don't have structural oversight then you don't know if your new live code could be calling the dead code."</p>
<div style="overflow: hidden; color: #000000; background-color: #ffffff; text-align: left; text-decoration: none;">The result, apparently, can be a bunch of legal trouble.</div>
<div style="overflow: hidden; color: #000000; background-color: #ffffff; text-align: left; text-decoration: none;">&nbsp;</div><p><a href="http://www.businessinsider.com/knight-capital-faces-glitch-lawsuits-2012-11#comments">Join the conversation about this story &#187;</a></p> http://www.businessinsider.com/traders-replaced-by-machines-2012-11Million-Dollar Traders Keep Getting Replaced By Machineshttp://www.businessinsider.com/traders-replaced-by-machines-2012-11
Tue, 06 Nov 2012 06:44:04 -0500Mary Childs
<p><img style="float:right;" src="http://static4.businessinsider.com/image/5098f73c69bedd9f7300000c-400-/terminator-machines.jpg" border="0" alt="terminator machines" width="400" /></p><p>Nov. 6 (<a class="hidden_link" href="http://www.businessinsider.com/blackboard/bloomberg">Bloomberg</a>) -- Wall Street&rsquo;s credit-derivatives traders, who before the financial crisis commanded $2 million of annual pay, are being replaced by machines as banks cut costs and heed new regulations.</p>
<p><a class="hidden_link" href="http://www.businessinsider.com/blackboard/ubs">UBS</a> AG, Switzerland&rsquo;s biggest bank, fired its head of credit-default swaps index trading, David Gallers, last week, with no plan to fill the position, according to two people familiar with the matter. Instead, the bank replaced Gallers with computer algorithms that trade using mathematical models, said the people, who asked not to be identified because moves are private.</p>
<p>UBS joins <a class="hidden_link" href="http://www.businessinsider.com/blackboard/barclays">Barclays</a> Plc, <a class="hidden_link" href="http://www.businessinsider.com/blackboard/credit-suisse">Credit Suisse</a> Group AG and <a class="hidden_link" href="http://www.businessinsider.com/blackboard/goldman-sachs">Goldman Sachs</a> Group Inc. in using computer programs to trade financial instruments that once generated some of their biggest fees. With regulators preparing rules under the 2010 Dodd-Frank financial reform that will push swaps toward exchange-like systems to improve transparency, credit dealers are going digital as automated trading makes humans too expensive.</p>
<p>&ldquo;It&rsquo;s natural to push away from humans and large size to machines and small size,&rdquo; Peter Tchir, the founder of New York- based TF Market Advisors, said in a telephone interview. &ldquo;It&rsquo;s been gaining momentum.&rdquo;</p>
<p>&nbsp;</p>
<h2>$250 Million</h2>
<p>&nbsp;</p>
<p>UBS&rsquo;s algorithm, which can trade as much as $250 million of the Markit CDX North America Investment Grade index and $50 million on the speculative-grade benchmark in one transaction, was introduced last month, the people said.</p>
<p>Azar Boehm, a spokeswoman for Zurich-based UBS, declined to comment, as did Gallers.</p>
<p>Automated trading of swaps marks a shift in a market where transactions historically have been negotiated over the phone after dealers, acting as a go-between for clients, send out indicative prices by e-mail. The dealers offer to buy a swap from a client at one price and sell the same contract to another for a higher amount, profiting from the gap, known as the bid- offer spread.</p>
<p>Outstanding contracts ballooned to more than $62 trillion at the market&rsquo;s peak in 2007 from $632 billion in 2001 as the derivatives gained popularity as a way to wager on debt without owning bonds or loans, data from the International Swaps and Derivatives Association show.</p>
<p>&nbsp;</p>
<h2>Human Costs</h2>
<p>&nbsp;</p>
<p>As late as 2005, managing directors on credit-derivative trading desks were being paid an average $250,000 in salaries and $1.75 million in bonuses, Michael Karp, co-founder of executive-search firm Options Group, said in a 2006 interview with Bloomberg News.</p>
<p>Building an algorithm may cost a few hundred thousand dollars, said Tchir, a former credit-derivatives trader.</p>
<p>Elsewhere in credit markets, <a class="hidden_link" href="http://www.businessinsider.com/blackboard/abbott-laboratories">Abbott Laboratories</a> sold $14.7 billion of bonds in the largest dollar-denominated offering in more than three years. The amount of delinquent commercial- property loans backing bonds fell to the lowest in 18 months, according to Citigroup Inc. Shares of Standard &amp; Poor&rsquo;s owner McGraw-Hill Cos. fell the most in almost a year after an Australian judge ruled S&amp;P misled investors by giving its highest grade to notes that plunged during the credit crisis.</p>
<p>The U.S. two-year interest-rate swap spread, a measure of debt-market stress, rose 0.16 basis point to 9.78 basis points. The gauge, which widens when investors seek the perceived safety of government securities and narrows when they favor assets such as corporate bonds, has climbed from 8 basis points on Oct. 17, the lowest intra-day level in Bloomberg data back to 1988.</p>
<p>&nbsp;</p>
<h2>Credit Benchmarks</h2>
<p>&nbsp;</p>
<p>The Markit CDX investment-grade index, a credit swaps benchmark that investors use to hedge against losses or to speculate on creditworthiness, fell 0.6 basis point to a mid- price of 96.9 basis points, according to prices compiled by Bloomberg.</p>
<p>The Markit iTraxx Europe Index of 125 companies with investment-grade ratings declined 1.3 to 128 basis points at 10 a.m. in London. In the Asia-Pacific region, the Markit iTraxx Asia index of 40 investment-grade borrowers outside Japan was little changed at 117.</p>
<p>The indexes typically fall as investor confidence improves and rise as it deteriorates. Credit swaps pay the buyer face value if a borrower fails to meet its obligations, less the value of the defaulted debt. A basis point equals $1,000 annually on a contract protecting $10 million of debt.</p>
<p>&nbsp;</p>
<h2>Abbott Deal</h2>
<p>&nbsp;</p>
<p>Bonds of <a class="hidden_link" href="http://www.businessinsider.com/blackboard/verizon">Verizon</a> Communications Inc. were the most actively traded dollar-denominated corporate securities by dealers yesterday, with 202 trades of $1 million or more, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. New York-based Verizon raised $4.5 billion last week in its first bond sale this year, according to data compiled by Bloomberg.</p>
<p>Through its AbbVie Inc. pharmaceutical unit, Abbott sold bonds in six parts ranging from $500 million to $4 billion, Bloomberg data show. Proceeds will help fund a $7.7 billion tender offer related to the drug and medical-device split into two.</p>
<p>The offering is the largest dollar-denominated sale since February 2009, when Roche Holding AG issued $16 billion of debt, Bloomberg data show. The biggest portion, $4 billion of 1.75 percent, five-year notes, yield 110 basis points more than similar-maturity Treasuries, Bloomberg data show.</p>
<p>The balance of debt past due tied to skyscrapers, shopping malls and hotels fell $1.5 billion to $53 billion last month, the lowest since April 2010, Citigroup analysts said in a Nov. 2 report. The rate of payments more than 30 days late fell 27 basis points to 9.76 percent, they said.</p>
<p>&nbsp;</p>
<h2>S&amp;P Ruling</h2>
<p>&nbsp;</p>
<p>Property owners are benefiting as Federal Reserve efforts to stimulate economic growth by holding its benchmark lending rate at almost zero for a fourth year pushes lenders to take on more risk for less reward. Sales of commercial-mortgage backed securities are surging as investors gravitate toward the debt in search of higher yields even as sluggish U.S. economic growth threatens to hold down rent and occupancy rates.</p>
<p>McGraw-Hill fell 4 percent to $52.24 after earlier dropping by as much as 7.1 percent in New York, the most since August 2011. Moody&rsquo;s Corp, the second-largest credit ratings company, dropped 3 percent to $46.60.</p>
<p>S&amp;P was &ldquo;misleading and deceptive&rdquo; in its rating of two structured-debt issues in 2006, Federal Court Justice Jayne Jagot said in her ruling in Sydney. The Australian municipalities that brought the case are entitled to damages from S&amp;P and two other defendants, ABN Amro Bank NV and Local Government Financial Services Pty., she ruled. The ratings company said it will appeal.</p>
<p>&nbsp;</p>
<h2>Volkswagen Sale</h2>
<p>&nbsp;</p>
<p>Volkswagen AG, Europe&rsquo;s biggest carmaker, sold 2.5 billion euros ($3.2 billion) in bonds that will automatically convert to shares at maturity to boost liquidity following the purchases of Porsche and Ducati.</p>
<p>The three-year notes will pay an annual coupon of 5.5 percent, the Wolfsburg, Germany-based automaker said in a statement today. The minimum conversion price has been set at 154.50 euros and the maximum at 185.40 euros.</p>
<p>In emerging markets, relative yields narrowed 1.3 basis points to 290.5 basis points, or 2.91 percentage points, according to JPMorgan Chase &amp; Co.&rsquo;s EMBI Global index. The measure has averaged 353 basis points this year.</p>
<p>Trading volumes in the current version of the Markit CDX high-yield credit swaps index have declined 20.4 percent through Oct. 26 from last year, according to Barclays analysts led by Brad Rogoff. The firm cited data from the Depository Trust &amp; Clearing Corp., which runs a central credit-swaps repository.</p>
<p>&nbsp;</p>
<h2>Bank Reserves</h2>
<p>&nbsp;</p>
<p>Market makers have slimmed down as regulators have ordered them to raise capital to prevent a repeat of the taxpayer-funded bailouts that followed the 2008 collapse of <a class="hidden_link" href="http://www.businessinsider.com/blackboard/lehman-brothers-1">Lehman Brothers</a> Holdings Inc. Banks will hold more reserves against riskier assets under the rules, known as Basel III. Swiss capital rules, applicable to UBS and Credit Suisse, are among the most stringent.</p>
<p>&ldquo;I don&rsquo;t think it&rsquo;s driven by a desire for efficiency as much as a desire to control costs,&rdquo; Bonnie Baha, head of global developed credit at Los Angeles-based <a class="hidden_link" href="http://www.businessinsider.com/blackboard/doubleline-capital">DoubleLine Capital</a> LP, which oversees more than $45 billion, said in a telephone interview. &ldquo;The cost of a major trading error which could possibly be avoided by having a real human person sitting and thinking about things will far outweigh the personnel costs they save by firing all these guys.&rdquo;</p>
<p>&nbsp;</p>
<h2>&lsquo;Natural Fit&rsquo;</h2>
<p>&nbsp;</p>
<p>Credit Suisse&rsquo;s program, which started in early 2011, is &ldquo;a natural fit with our other strong electronic-trading businesses in rates, <a class="hidden_link" href="http://www.businessinsider.com/blackboard/fx">FX</a>, and commodities,&rdquo; said Jack Grone, a spokesman in New York for Switzerland&rsquo;s second-biggest bank.</p>
<p>Michael DuVally, a spokesman for Goldman Sachs in New York, didn&rsquo;t immediately comment.</p>
<p>Barclays&rsquo;s algorithm was designed to handle smaller trade sizes and began in April 2011 with the capacity to handle transactions as large as $25 million on the investment-grade index and $5 million on the high-yield benchmark, according to Drew Mogavero, head of U.S. credit-swaps trading. Those sizes have since doubled, he said.</p>
<p>For smaller trades in which there&rsquo;s less at stake, &ldquo;we want to automate that process as much as possible and free up the sales people and traders,&rdquo; Fred Orlan, head of global credit trading, said in a telephone interview. &ldquo;We want to spend our time driving ideas and solutions to things that have a bigger impact on clients&rsquo; overall returns, so that&rsquo;s really what we&rsquo;re here for.&rdquo;</p>
<p>&nbsp;</p>
<h2>Liquidity Response</h2>
<p>&nbsp;</p>
<p>The algorithm is designed to respond to liquidity in the market, so the bid-offer spread widens and tightens according to flows, Mogavero said. In liquid markets, trading odd lots through the algorithm typically cuts down that spread, he said.</p>
<p>&ldquo;It&rsquo;s not hard to envision an environment given the growth and popularity of algo trading of indices where the sizes continue to increase,&rdquo; Mogavero said.</p>
<p>The programs so far are primarily used when markets have a balance of buyers and sellers and are driven by dealers to make markets or hedge their own books, according to Nancy Davis, director of derivatives in New York at AllianceBernstein LP.</p>
<p>Barclays shut off its algorithm in Europe in May, deciding conditions and market structure weren&rsquo;t yet suitable to support it, according to two people familiar with the decision.</p>
<p>Dealers are &ldquo;definitely fighting for market share,&rdquo; Davis said in a telephone interview. &ldquo;Once you get plugged, it just becomes operationally easy to trade, so that&rsquo;s what the rush is to get all these algos out. It&rsquo;s kind of a race to say who has the best plug-and-play-model right now to gain market share. I don&rsquo;t think there&rsquo;s a clear winner or loser at this point.&rdquo;</p>
<p>&nbsp;</p>
<h2>Cost Structure</h2>
<p>&nbsp;</p>
<p>Clearing and margin required by Dodd-Frank will also change the cost structure of trading, and algorithms may be one area where traders will be required to post less capital relative to other types of transactions, she said.</p>
<p>Algorithms may also get a boost if CDX futures get traction, Davis and Tchir said.</p>
<p>&ldquo;You&rsquo;ll see more people do it, and as these products become more easy for people to trade electronically there will be more participants&rdquo; from firms such as <a class="hidden_link" href="http://www.businessinsider.com/blackboard/citadel">Citadel</a> LLC, <a class="hidden_link" href="http://www.businessinsider.com/blackboard/susquehanna-international-group">Susquehanna International Group</a> LLP, or Knight Capital Group Inc., Tchir said. &ldquo;They&rsquo;ll be able to add their algos to it once it becomes more mainstream.&rdquo;</p>
<p>The increasing popularity of algorithms is an example of how credit markets are becoming more like stocks, Tchir said, citing so-called E-mini S&amp;P 500 futures, with a contract value of $70,513 as of yesterday and trading volume of as much as $200 billion a day with no real market maker, he said.</p>
<p>&nbsp;</p>
<h2>Block Trading</h2>
<p>&nbsp;</p>
<p>Banks will probably be successful in block trading or in systems resembling so-called dark pools where large orders are traded without identifying the brokers and institutions that buy and sell, he said. There will be &ldquo;fewer market makers, but those that remain will provide very large-size block trades,&rdquo; he said.</p>
<p>Computer-driven transactions and high-frequency trading have come under increased scrutiny after the so-called flash crash in May 2010, when a 20-minute plunge in stock prices temporarily erased some $862 billion of market value. A report by the U.S. Securities and Exchange Commission and the <a class="hidden_link" href="http://www.businessinsider.com/blackboard/commodity-futures-trading-commission">Commodity Futures Trading Commission</a> pinned the decline partly on an algorithm employed by one firm trading stock futures.</p>
<p>&ldquo;They have a bad rap on the street as driving the &rsquo;87 crash and they&rsquo;re not considered by Main Street as friendly vehicles, but at the same time, they are liquidity providers and that&rsquo;s the biggest change with Dodd-Frank,&rdquo; AllianceBernstein&rsquo;s Davis said. &ldquo;Having more algos in the market in these products will help because it will give market makers a way to have more liquidity so when you call a dealer up they&rsquo;ll have another outlet.&rdquo;</p>
<p><br /> </p>
<p>--With assistance from Nina Mehta, Sarika Gangar, Matt Robinson and Sarah Mulholland in New York and Jonathan Morgan in Frankfurt. Editors: Shannon D. Harrington, Alan Goldstein</p>
<p>&nbsp;</p>
<p>To contact the reporter on this story: Mary Childs in New York at mchilds5@bloomberg.net</p>
<p>&nbsp;</p>
<p>To contact the editor responsible for this story: Alan Goldstein at agoldstein5@bloomberg.net</p>
<p><img class="nc_pixel" src="http://pixel.newscred.com/px.gif?key=YXJ0aWNsZT0xN2EyNDc4MzFiOWM5OWI0NzZlNWRiMzkwY2ZlNGNkMCZvd25lcj1hODNkNTc2MGMzN2Q3Mjc0MzYyNzkxODhiZmM0MTJkZCZub25jZT05Y2FlNzY0My04MTI5LTRkN2UtYjYxNS1iYTc4NDA4OGQ2MGMmcHVibGlzaGVyPThjMDBmYmVlNjFkNWJjZjBjNjA5MmQ4YjkyZWJiY2Ex" border="0" alt="" width="1" height="1" /></p><p><a href="http://www.businessinsider.com/traders-replaced-by-machines-2012-11#comments">Join the conversation about this story &#187;</a></p> http://www.businessinsider.com/mysterious-activity-causes-stock-swings-2012-10Woah! Mysterious, Wild Swings In Dozens Of Stocks Coming From A Dark Poolhttp://www.businessinsider.com/mysterious-activity-causes-stock-swings-2012-10
Tue, 09 Oct 2012 12:56:00 -0400Linette Lopez and Julia La Roche
<p>We noticed some chatter about crazy swings in stocks like <a class="hidden_link" href="http://www.businessinsider.com/blackboard/pandora">Pandora</a> and <a class="hidden_link" href="http://www.businessinsider.com/blackboard/nokia">Nokia</a>, and low and behold (the charts below) the swings are a real thing.</p>
<p>According to Eric Hunsader of <a href="http://www.nanex.net/index.htm">Nanex</a>, a Chicago area firm that tracks market data, the strange activity is coming from a an automated trading program managed by a "dark pool" (a group of unidentified large investors), though they could also be "fat finger" errors entered by a humans.</p>
<p>In Pandora, for example, one order was entered at $10.4340 and it should probably been entered at $10.0434. The first strange moves took place at 10:02:20 AM.</p>
<p>This activity is impacting dozens of stocks <a href="https://docs.google.com/spreadsheet/ccc?key=0AkGfo-4nrhWtdF9tOW8tdjZOLU13dEFQd0stU3dZeWc">(here's a full list, called MiniKnight)</a> and <span>the orders entered are all off by subpennies to 3 decimal places. <br /></span></p>
<p>Also, Hunsader added, all this activity is coming from the same place.</p>
<p>Now why did this happen? "There's no way of knowing wy unless you ask the person," he said.</p>
<p>CNBC's Bob Pisani reported that these moves haven't triggered a circuit breaker. &nbsp;<a class="hidden_link" href="http://www.businessinsider.com/blackboard/cnbc">CNBC</a> wasn't able to get a comment from Nasdaq.</p>
<p>Check out the charts below.&nbsp;</p>
<p>Nokia:&nbsp;</p>
<p>&nbsp;</p>
<p><img src="http://static2.businessinsider.com/image/50744d86ecad047941000003-728-531/nokia.png" border="0" alt="Nokia" /></p>
<p>Here's Pandora:&nbsp;</p>
<p><img src="http://static4.businessinsider.com/image/50744db8ecad04083d000024-730-533/pandora.png" border="0" alt="Pandora" /></p>
<p>Here's XLF:&nbsp;</p>
<p><img src="http://static4.businessinsider.com/image/50744def6bb3f7351d00000e-726-533/xlf.png" border="0" alt="XLF" /></p><p><a href="http://www.businessinsider.com/mysterious-activity-causes-stock-swings-2012-10#comments">Join the conversation about this story &#187;</a></p> http://www.businessinsider.com/father-of-modern-algo-trading-ultra-fast-ordering-has-no-social-value-2012-8Father Of Modern Algo Trading: Ultra-fast Ordering 'Has No Social Value'http://www.businessinsider.com/father-of-modern-algo-trading-ultra-fast-ordering-has-no-social-value-2012-8
Wed, 29 Aug 2012 12:19:12 -0400Rob Wile
<p><img style="float:right;" src="http://static4.businessinsider.com/image/503e35bceab8ea0a22000042/thomas-peterffy.png" border="0" alt="thomas peterffy" /></p><p>Life stories don't get much more fascinating than Thomas Peterffy's.</p>
<p>Yesterday, <a class="hidden_link" href="http://www.businessinsider.com/blackboard/npr">NPR</a> Planet Money correspondent David Kestenbaum (h/t <a href="http://ibankcoin.com/news/2012/08/29/pioneer-of-high-frequency-robots-speaks-out/?utm_source=wordtwit&amp;utm_medium=social&amp;utm_campaign=wordtwit">iBankCoin</a>) <a href="http://www.npr.org/blogs/money/2012/08/27/159992076/a-father-of-high-speed-trading-thinks-we-should-slow-down">interviewed</a> the man considered the father of algorithmic trading and learned the following:</p>
<p>He grew up in Communist Hungary and fled to the U.S. at age 21, speaking no English.</p>
<p>In the late '70s, he built a "proto-iPad" to bring to the trading floor that contained his mathematical shortcuts for beating the market,.</p>
<p>And a decade later, he had built an actual robot with rubber fingers to type trading orders into a NASDAQ terminal.&nbsp;</p>
<p>But Peterffy, now chairman of Interactive Brokers, now believes the trading speed arms race "has no social value," and he&nbsp;now favors more regulation that would include more safeguards.&nbsp;</p>
<p><a href="http://www.npr.org/blogs/money/2012/08/27/159992076/a-father-of-high-speed-trading-thinks-we-should-slow-down"><em>Listen to the full interview on NPR.org.</em></a></p>
<p>&nbsp;</p><p><a href="http://www.businessinsider.com/father-of-modern-algo-trading-ultra-fast-ordering-has-no-social-value-2012-8#comments">Join the conversation about this story &#187;</a></p> http://www.businessinsider.com/dark-pools-by-scott-patterson-2012-6DARK POOLS: Despite The Scary Title, This Is A Good History Of High Speed Tradinghttp://www.businessinsider.com/dark-pools-by-scott-patterson-2012-6
Wed, 20 Jun 2012 06:40:40 -0400Eric Falkenstein
<p><a href="http://www.amazon.com/gp/product/0307887170/ref=as_li_ss_tl?ie=UTF8&amp;tag=thebusiinsi-20&amp;linkCode=as2&amp;camp=1789&amp;creative=390957&amp;creativeASIN=0307887170"><img style="float:right;" src="http://static1.businessinsider.com/image/4fe1a7cf6bb3f7a92e000014/dark-pools.jpg" border="0" alt="dark pools" /></a>Scott Patterson's new book <a href="http://www.amazon.com/gp/product/0307887170/ref=as_li_ss_tl?ie=UTF8&amp;tag=thebusiinsi-20&amp;linkCode=as2&amp;camp=1789&amp;creative=390957&amp;creativeASIN=0307887170">Dark Pools: High-Speed Traders, A.I. Bandits, and the Threat to the Global Financial System</a> suggests a Rolling Stone type expose of vampire squids sucking the vital fluids out of widows and orphans. In contrast, most of the book was about the development of electronic exchanges from 1990 through 2007, especially focused on the firms Archapelego and Island. It reminds me of Justin Fox's <a href="http://www.amazon.com/gp/product/0060599030/ref=as_li_ss_tl?ie=UTF8&amp;tag=thebusiinsi-20&amp;linkCode=as2&amp;camp=1789&amp;creative=390957&amp;creativeASIN=0060599030">Myth of the Rational Market</a> which suggested a rather slanted and damning hatchet job but then did nothing of the sort. I suppose the marginal business book buyer is on the way to an Occupy rally.<br /> <br /> I work on tactics related to these tactics and technologies, so found it very enjoyable. The real hero of this book, rightly, is Joshua Levine, who started Island. He pioneered paying for flow, where one pays those making markets, and charges those crossing the spread. He was on the bleeding edge in cloud computing, creating more robust infrastructure with a fraction of the budget than his big-time competitors. I know people who dealt with him, and they highlight how thoughtful he was about sharing information back in the day on order strategies, technical stuff that others might guard in a paranoid fashion. Levine thought if his customers could make more money, they would trade more, and this would breed even more liquidity. In other words, a classic business mensch.<br /> <br /> &nbsp;There are lots of numbers thrown around, but it's good to remember that&nbsp;&nbsp;electrons move about 1 foot per nanosecond, so there's a basic limit&nbsp;to how fast these things can get. &nbsp;It is true that humans generally take &nbsp;a couple hundred milliseconds to process information and push a button, so clearly computers that can turn around info in a couple milliseconds beat humans in any whack-a-mole game. &nbsp;But all that pico-stuff is pretty silly. &nbsp;Consider the S&amp;P minis futures contracts trades 400k times a day, so every 60 milliseconds (thousandth of a second) represents the highest frequency relevant for any contract. Stocks like IBM trade about&nbsp;once a second. Thus, all that super speed below a millisecond is not for trading so much as 'lining the book', market makers playing games in the queue to provide liquidity. &nbsp;Your average trader should think about this as much as they think about what's going on <a href="http://www.hiddenmickeys.org/WDW/MagicKingdom/Secrets/General/Underground.html">underground at Disney World. &nbsp;&nbsp;</a><br /> <br /> There's a theme that originally the innovators wanted to cut out the middlemen, but then discovered there were new middlemen. Meet the new boss, as The Who would say. The bottom line is that spreads on big stocks like MSFT and ORCL used to be &frac14; in the good old days before ECNs, which allowed lots of traders to make a fortune via their monopoly access to customer flow and the various barriers to competitors. That these specialists are now unemployed should be considered classic creative destruction. &nbsp;I knew several of them; they were lucky while it lasted, and it lasted too long.<br /> <br /> &nbsp;The book is a bit light on actual tactics, making some strategies sound a lot more effective than they are. For example, Patterson describes a strategy he calls "0+", that supposedly makes money with zero risk. In fact, this strategy does have risk, because it presumes that you can always exit your position before the queue behind disappears. &nbsp; Often a level gets 'taken out' by an order and so the queue behind you is gone within any possible time to place new order and get out at scratch (pre-fees, I should add). Indeed, the trader plying this strategy is presented later pathetically fishing for 10 minute stock predictors like thousands of other punters, highlighting this was no money pump.<br /> <br /> A lot of the conspiracy talk around algorithms presumes a market price reflects 'true value', like the mass of something, and that algorithms are keeping others from it. Market prices approximate value, but a price is really an aggregate compromise, one that almost everyone disagrees with. &nbsp;If you want to buy <strong>more</strong>, <strong>now</strong>, you will pay a higher price because you need to convince more people to take the other side. Jehova shouldn't care because 'true value' is unaffected by such concerns, but the market does, and so comparing prices to some assumed point estimate of 'true value' just leads to meaningless disquisitions. &nbsp;If you want to think about such issues just remember all those theologians who wrote about the 'just price' for about one thousand years and whose work is now totally ignored for good reason, to give you a sense of your futility. &nbsp; <br /> <br /> The bottom line is that those buyers and sellers with big orders have always moved markets from their 'last price', and in the old days this was all done via a coalition of partners over a phone, but now algorithms sniff out these orders by noting a higher-than-usual buy crossing rate, or sense a really big iceberg limit order, and so basically have expropriated the front-running revenue from the traditional recipient of this value. A large order will move prices so it's going to be exploited, and this is better done competitively via electronic markets than by a specialist with monopoly access to the flow.<br /> <br /> &nbsp;There's some funny other stuff in there, like how regulator are pretty irrelevant to all the innovations. Indeed, the regulators appear more interested in protecting the <em>status quo</em>, as George Stigler noted 50 years prior in his work on the <a href="http://techliberation.com/2010/12/19/regulatory-capture-what-the-experts-have-found/">industry capture of regulators</a>. Mary Schapiro gets <a href="http://falkenblog.blogspot.com/2010/11/book-review-all-devils-are-here.html">her standard uncritical mention</a>, as she is always presented as the righteous regulator who would have prevented the 2008 crisis if it weren't for Lawrence Summers and his cabal. Her big idea after the flash crash was 'circuit breakers', aka limit price moves. This doesn't help much, as decades of experience with these in futures has shown, though it does 'work' if you merely want to prevent prices from moving more than 5% a day (why not solve the Greek budget deficit by not reporting it?). <br /> <br /> The Flash Crash of May 6 2010 included an order to by 75000 contracts when your average price level had only 5000 contracts there, so it pushed the 'market price' into uncharted territory. Its understandable these things happen, it's a new technology, lots of users, and lots of new emergent properties, most coming down to problems related to idiots placing large 'market orders' that wipe out several 'levels' of prices. I bet the exchanges will figure out a governor in spite of what the SEC does, but such issues are really irrelevant to what caused the crisis of 2008 or the 'Global Financial System.' <br /> <br /> Part of a popular work on technical issues seems to involve building up the major players as geniuses, going over their rocket science background. In this case it's like pointing out how every professional football player was an outstanding high school athlete--financial innovators tend to have done well in math and science, so that whole physicist turned financier story isn't rare or intellectually sexy. I suppose that's how to get your hooks into the masses, because people like to read about geniuses.<br /> <br /> In spite of the scary title, it's simply a good story of how innovators destroy the old guard. If you are worried about high frequency traders you almost surely trade too much, and would be better focused on asset markets built on things that are truly unsustainable. &nbsp;High frequency traders are very sensitive to cash flow (note Trading Machines shut down pretty quickly after not finding a niche), so they aren't building palaces based on unrealistic expectations like, say, California or or NYU journalism majors.&nbsp;</p><p><a href="http://www.businessinsider.com/dark-pools-by-scott-patterson-2012-6#comments">Join the conversation about this story &#187;</a></p> http://www.businessinsider.com/200-milliseconds-can-mean-life-or-death-for-high-frequency-traders-2012-3HIGH FREQUENCY TRADING: Researchers Have Figured Out The Magic Numberhttp://www.businessinsider.com/200-milliseconds-can-mean-life-or-death-for-high-frequency-traders-2012-3
Fri, 02 Mar 2012 12:02:00 -0500Rob Wile
<p><img style="float:right;" src="http://static4.businessinsider.com/image/4f50fc3decad044c1d00002a-400-300/flash-baby-costume.jpg" border="0" alt="flash baby costume" width="400" height="300" /></p><p>Speed, or lack thereof, kills.</p>
<p>In one of the first studies to quantify the opportunity cost of slow algorithmic trades, <a href="http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2013789">Martin L. Scholtus </a><a href="http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2013789">and Dick van Dijk of the Erasmus University Rotterdam</a> found that on an average trading day, a delay of 200 milliseconds can result in significant missed opportunities.</p>
<p>Setting up 27,424 technical trading rules for the S&amp;P 500, NASDAQ 100 and Russell 2000 indexes, the researchers compared the difference in performance for optimal trades executed instantly versus those executed at delayed intervals.</p>
<p><strong>Trades executed after 200 miliseconds underperformed the instant trades by 3% on average.</strong></p>
<p>And after 1 second? Forget it.</p>
<p>"About 85% of all improvements to the best bid or ask (BBA) quote are either removed or fully executed within 1 second for (the S&amp;P 500)," the researchers write.&nbsp;</p>
<p>The figure was 60% for NASDAQ and 70% for the Russell 2000.</p>
<p>On days with low volatility, a delay of just 50 miliseconds can prove costly.</p>
<p>Here are the graphs that prove it:</p>
<p><img src="http://static3.businessinsider.com/image/4f50fcadeab8ea2770000074/chart.png" border="0" alt="chart" /></p>
<p><img src="http://static6.businessinsider.com/image/4f50fcde69bedd2e7d00002d/chart.png" border="0" alt="chart" /></p><p><a href="http://www.businessinsider.com/200-milliseconds-can-mean-life-or-death-for-high-frequency-traders-2012-3#comments">Join the conversation about this story &#187;</a></p> http://www.businessinsider.com/yihao-ben-pu-citadel-2011-11Check Out The Sanitary Canal Where Divers Recovered Citadel's Secret Trading Infohttp://www.businessinsider.com/yihao-ben-pu-citadel-2011-11
Fri, 04 Nov 2011 10:47:00 -0400Julia La Roche
<p><img style="float:right;" src="http://static3.businessinsider.com/image/4eb3f29169bedd942b000024/yihao-ben-pu.jpg" border="0" alt="Yihao Ben Pu" /></p><p><img style="float:right;" src="http://static4.businessinsider.com/image/4eb3f2b169bedd623b000000/yihao-ben-pu.jpg" border="0" alt="Yihao Ben Pu" /><img style="float:right;" src="http://static3.businessinsider.com/image/4eb3f2c569bedd713b000000/sanitary-canal.jpg" border="0" alt="Sanitary Canal" />You'll remember that Yihao Ben Pu, the 24 year-old former quant engineer at <a href="http://www.businessinsider.com/blackboard/citadel" class="hidden_link">Citadel</a>, was <a href="http://www.businessinsider.com/yihao-ben-pu-citadel-2011-10">arrested last month for attempting to steal confidential information</a> from the hedge fund's trading systems.</p>
<p>Brief refresher: the ex-tech employee at Ken Griffin's Citadel was&nbsp;<a href="http://abclocal.go.com/wls/story?section=news/iteam&amp;id=8418090">charged with stealing the secret alpha codes and transferring them to external devices</a>, <a href="http://www.businessinsider.com/blackboard/abc" class="hidden_link">ABC</a> WLS in Chicago reported.</p>
<p>Well, in the case against him, a remarkable detail about how authorities found the evidence to arrest him has emerged.</p>
<p>From ABC WLS:</p>
<p style="padding-left: 30px;">He was arrested after an associate of his told the company and federal agents some of the evidence had been dumped into a sanitary canal near Wilmette Harbor.&nbsp;Divers discovered computer equipment in the water that contained Citadel's alphas.</p>
<p>First of all, that sounds like a scene out of a James Bond movie.&nbsp;</p>
<p>Second, water didn't damage the info on the hardware? Guess that's why Zvi Goffer's genius methods of <a href="http://www.businessinsider.com/jason-goldfarb-destroyed-pre-paid-cell-phones-in-goffer-trial-2011-5">destroying a tainted cell phone</a> didn't work.</p>
<p>And third, how did the former Harvard research intern and Cornell graduate manage to be all smiles when he appeared in court?</p>
<p>Clearly the court system and/or Citadel is going after him hardcore.</p>
<p>And, during that court appearance, he had to agree to put his family home in Massachusetts up as bond.&nbsp;</p>
<p>This case reminds us of the trade secret theft executed by programmer <a href="../../blackboard/sergey-aleynikov" class="hidden_link">Sergey Aleynikov</a>, who used to work for <a href="../../blackboard/goldman-sachs" class="hidden_link">Goldman Sachs</a> writing algorithms.&nbsp;</p>
<p>Aleynikov was found guilty of stealing Goldman's high-frequency proprietary trading algorithms.</p>
<p>He was <a href="../../former-goldman-programmer-aleynikov-gets-97-months-in-prison-for-stealing-proprietary-trading-code-2011-3">sentenced in December to 8 years</a>. &nbsp;</p>
<p>If you haven't learned by now, after you've seen the efforts that their former firms launched against Aleynikov,&nbsp;<a href="http://www.businessinsider.com/samarth-agrawal-3-years-socgen-prison-high-frequency-code-2011-3">Samarth Agrawal</a>, and Mikhail Malyshev, that firms with proprietary trading info are paranoid about people stealing it and will go to dramatic lengths to not only recover it, but prosecute the crap out of you, we suggest you learn it now.&nbsp;</p>
<p><strong>Don't miss: <a href="http://www.businessinsider.com/goldman-thief-sergey-aleynikov-got-served-with-more-time-in-jail-than-a-rapist-2011-3">The U.S. Court system decides it's worse to steal algos from Goldman than to kill someone &gt;</a></strong></p><p><a href="http://www.businessinsider.com/yihao-ben-pu-citadel-2011-11#comments">Join the conversation about this story &#187;</a></p> http://www.businessinsider.com/quant-charged-with-hiding-flaws-in-his-algo-from-investors-2011-9SEC Sues Quant Over An Undisclosed Error In His Trading Algorithmhttp://www.businessinsider.com/quant-charged-with-hiding-flaws-in-his-algo-from-investors-2011-9
Thu, 22 Sep 2011 16:05:47 -0400Linette Lopez
<p><img style="float:right;" src="http://static2.businessinsider.com/image/4c1789d07f8b9a5170990100/pi-quant-cake.jpg" border="0" alt="Pi Quant Cake" /></p><p>Barr M. Rosenberg agreed to settle the charges and will pay the <a class="hidden_link" href="http://www.businessinsider.com/blackboard/sec">SEC</a> $2.5 million for purposely hiding major errors in the computer code of Axa Rosenberg LLC's quantitative investment model.</p>
<p>The SEC's lawsuit says that Rosenberg detected the errors in 2009, but kept them quiet, and instructed other members at his company to do the same.</p>
<p>Investors in the fund lost $217 million because of the error in his algo.</p>
<p><a href="http://www.sec.gov/news/press/2011/2011-189.htm">From the SEC press release:</a></p>
<p style="padding-left: 30px;">The material error in the model's computer code disabled one of its key components for managing risk and affected the model's ability to perform as expected. Clients raised concerns about this underperformance, and Rosenberg knew about and discussed these concerns with others at AXA Rosenberg...</p>
<p style="padding-left: 30px;">"Investors in quant funds trust their advisers to develop, maintain and operate the quant models that drive a fund's performance. Rosenberg betrayed investors when he failed to disclose the material coding error," said Bruce Karpati, Co-Chief of the Asset Management Unit in the SEC's Division of Enforcement.</p>
<p>The court was able to prove that Rosenberg was in charge of the model, and, as a consultant to others using the program, was considered an industry expert.</p>
<p>Here's how his model worked, according to the SEC filing:</p>
<p style="padding-left: 30px;">The Model consisted of three components: the Alpha Model, Risk Model, and Optimizer. The Alpha Model evaluates public companies based on their earnings and valuation. The Risk Model identifies risk on two primary bases &ndash; specific stock risk and common factor risks. <strong>Common factor risks include, among other things: (i) specific industry risks, which are risks associated with certain industries (such as oil, automobiles, or airlines); (ii) country risks, which are risks associated with particular countries; and (iii) stock fundamental risks, which capture price to earnings ratios and similar metrics.</strong> The Optimizer takes the output from the Alpha and Risk Models, balances them against each other, and recommends an optimal portfolio for the client based on a benchmark chosen by the client, such as the S&amp;P 500.</p>
<p>Then in 2007, Rosenberg commissioned a new model of the risk model. Computer programmers finished designing the program in 2009, and noticed that it was spitting out weird ("unexpected") results.</p>
<p style="padding-left: 30px;">Some Risk Model components sent information to the Optimizer in decimals while other components reported information in percentages; therefore the Optimizer had to convert the decimal information to<br />percentages in order to effectively consider all the information on an equal footing. <strong>Because proper scaling did not occur, certain decimal information was not converted to percentages and the Optimizer did not give the intended weight to common factor risks.</strong></p>
<p>Despite investors' concerns, Rosenberg said nothing. According to the SEC:</p>
<p style="padding-left: 30px;">Due to Rosenberg's misconduct, AXA Rosenberg and its affiliated investment advisers <strong>misrepresented to clients that the model's underperformance was attributable to factors other than the error</strong>, and inaccurately stated that the model was controlling risk correctly. Rosenberg's instructions to delay fixing the error caused additional client losses.</p>
<p>Later that year, Axa's Investment Committee authorized some, but not all, of the changes needed to fix the problem for U.S. investors. Rosenberg knew that more had to be done, but he kept quiet. The entire magnitude of the problem was not fully disclosed until March of 2010, when SEC investigators visited Axa.</p><p><a href="http://www.businessinsider.com/quant-charged-with-hiding-flaws-in-his-algo-from-investors-2011-9#comments">Join the conversation about this story &#187;</a></p> http://www.businessinsider.com/ambrosiadou-coward-hedge-fund-divorce-battle-2011The Story Of Elena Ambrosiadou And The Battle For Her Hedge Fund's Secret Trading Algohttp://www.businessinsider.com/ambrosiadou-coward-hedge-fund-divorce-battle-2011
Wed, 03 Aug 2011 08:42:00 -0400Courtney Comstock
<p><img style="float:right;" src="http://static1.businessinsider.com/image/4d25e53f4bd7c8f02a140000/martin-coward-and-elena-ambrosiadou.jpg" border="0" alt="Martin Coward and Elena Ambrosiadou" /></p><p>The founders of the hedge fund <a href="http://www.businessinsider.com/blackboard/ikos" class="hidden_link">Ikos</a>, <a href="http://www.businessinsider.com/blackboard/martin-coward" class="hidden_link">Martin Coward</a> and <a href="http://www.businessinsider.com/blackboard/elena-ambrosiadou" class="hidden_link">Elena Ambrosiadou</a>, were one of Britain's most wealthy and glamorous couples throughout the 90s and into the last decade.</p>
<p>Now various lawsuits accuse Ambrosiadou of spying on former employees and on Coward, who is now her ex-husband.</p>
<p>Ambrosiadou says she did it for the good of the firm, because she suspected that an employee stole Ikos' top secret trading algorithms to help Coward set up a rival firm.&nbsp;</p><h3>1978ish: Coward and Ambrosiadou meet while studying at Cambridge</h3>
<img src="http://static4.businessinsider.com/image/4dece36e49e2aefc2a200000-400-300/1978ish-coward-and-ambrosiadou-meet-while-studying-at-cambridge.jpg" alt="" />
<p><p>While studying for his PhD. in Mathematics, Coward met the Greek-born Ambrosiadou, a student at the all-girl <a href="http://en.wikipedia.org/wiki/Lucy_Cavendish_College,_Cambridge">Lucy Cavendish College</a> where she was studying for a degree in Chemical Engineering.</p>
<p>Coward's advanced study in higher mathematics would be the basis for the the couple's "Quant" trading approach and <a href="http://www.cranfield.ac.uk/news/pressreleases/2007/page4805.html">the MBA that Ambrosiadou would earn from Cranfield Universit</a>y would be an asset to the administration of their business.</p></p>
<br/><br/><h3>1986: Goldman Sachs recruits Coward, a "heavy duty quant"</h3>
<img src="http://static2.businessinsider.com/image/4decf8b7cadcbb5714050000-400-300/1986-goldman-sachs-recruits-coward-a-heavy-duty-quant.jpg" alt="" />
<p><p>Goldman scoured research labs for quants and found and recruited Coward.</p>
<p>"Martin was a heavy-duty quant. He was more of a thinker. Elena was the business-minded person," says Ron DiRusso, who worked with Coward at Goldman.</p>
<p>Coward's&nbsp;<a href="http://www.thehedgefundjournal.com/magazine/200802/manager-writes/who-knows-what-the-future-holds.php">work as foreign exchange strategist for Goldman in both London and New York</a> made Coward a player on both Wall Street and in European markets.</p>
<p><em>Source:&nbsp;<a href="http://www.bloomberg.com/news/2011-08-02/love-at-ikos-hedge-fund-sours-as-ambrosiadou-fights-with-coward.html">Bloomberg Markets Magazine</a></em></p></p>
<br/><br/><h3>1980 - 1990: Ambrosiadou works as an executive for BP, Coward moves to Investcorp</h3>
<img src="http://static6.businessinsider.com/image/4decf8e2ccd1d5e924030000-400-300/1980-1990-ambrosiadou-works-as-an-executive-for-bp-coward-moves-to-investcorp.jpg" alt="" />
<p><p>Coward leaves Goldman in 1989 and starts work at Investcorp, a Manama,Bahrain&ndash;based investment bank.</p>
<p>Meanwhile, Ambrosiadou works up the ranks at BP. She&nbsp;<a href="http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/6812992/Elena-Ambrosiadous-husband-leaves-Ikos-to-start-his-own-fund.html">became an executive at the British petroleum company at the age of 27.</a></p>
<p><em>Source:&nbsp;<a href="http://www.bloomberg.com/news/2011-08-02/love-at-ikos-hedge-fund-sours-as-ambrosiadou-fights-with-coward.html">Bloomberg Markets Magazine</a></em></p></p>
<br/><br/><a href="http://www.businessinsider.com/ambrosiadou-coward-hedge-fund-divorce-battle-2011#1990-1992-the-couple-quit-their-jobs-and-found-ikos-ltd-a-trading-account-uses-math-algorithms-4">See the rest of the story at Business Insider</a> http://www.businessinsider.com/samarth-agrawal-3-years-socgen-prison-high-frequency-code-2011-327-Year Old Samarth Agrawal To Spend 3 Years In Prison For Stealing SocGen's High Frequency Codehttp://www.businessinsider.com/samarth-agrawal-3-years-socgen-prison-high-frequency-code-2011-3
Tue, 01 Mar 2011 09:56:29 -0500Courtney Comstock
<p><img style="float:right;" src="http://static4.businessinsider.com/image/4bce24117f8b9a0d20c60200/samarth-agrawal-soc-gen.jpg" border="0" alt="samarth-agrawal-soc-gen" /></p><p>Samarth Agrawal was <a href="http://www.courthousenews.com/2011/03/01/34537.htm">sentenced to three years</a> for stealing SocGen's proprietary high frequency trading algorithms yesterday, making him the first person to be convicted of stealing high frequency code.</p>
<p>The government calculated the loss of the code to cost SocGen $9.58 million, and requested that he be jailed for 63 to 78 months.</p>
<p>But Agrawal's character convinced the judge that he deserved less.</p>
<p>The character references that worked Agrawal's favor, according to <a href="http://www.courthousenews.com/2011/03/01/34537.htm">Courthouse News</a>:</p>
<p>&nbsp;</p>
<ul>
<li>He prays to a picture of his mother and grandfather in his cell and "feels remorse on a level that I have never known."</li>
<li>Agrawal spoke about the pain he caused his parents</li>
<li>He said he felt "shame" that he acted alone, under nobody's supervision.</li>
<li>"What do you do when there is no light? When there is complete darkness? That's your character," Agrawal said.</li>
</ul>
<p>&nbsp;</p>
<p>He's sentenced to spend three years in jail.</p>
<p>Tower Research Capital, where Agrawal was headed, said they couldn't even use the code.&nbsp;</p>
<p><a href="http://www.businessinsider.com/samarth-agrawal-working-on-the-weekends-is-a-red-flag-at-socgen-2010-11">Click here to read how Agrawal got caught</a> and <a href="http://www.businessinsider.com/samarth-agrawal-soc-gen-trade-secrets-defense-someone-pushed-me-aside-typed-it-into-my-computer-2010-11">here to read about the other things</a> he said in his defense.</p>
<p>Earlier: <a href="http://www.businessinsider.com/samarth-agrawal-socgen-2010-4">The next Sergey Aleynikov? SocGen trader arrested for stealing code</a></p><p><a href="http://www.businessinsider.com/samarth-agrawal-3-years-socgen-prison-high-frequency-code-2011-3#comments">Join the conversation about this story &#187;</a></p> http://www.businessinsider.com/paul-walker-sergey-aleynikov-prosecution-goldman-sachs-computer-code-stoleEveryone Loved Goldman's Paul Walker's Joke About The Bank's Secret Algos (GS)http://www.businessinsider.com/paul-walker-sergey-aleynikov-prosecution-goldman-sachs-computer-code-stole
Thu, 02 Dec 2010 11:11:00 -0500Courtney Comstock
<p><img style="float:right;" src="http://static4.businessinsider.com/image/4b4f490c0000000000ad488e/sergey-aleynikov.jpg" border="0" alt="sergey aleynikov" /></p><p>The courtroom enjoyed Goldman Managing Director Paul Walker's joke about the bank's top secret trading algorithms, but the rest of his testimony raised some eyebrows.</p>
<p>In court yesterday, the prosecutors were trying to prove that Sergey Aleynikov is guilty of stealing proprietary high-frequency trading code from Goldman Sachs.</p>
<p>Aleynikov and his defense attorneys <a href="http://www.courthousenews.com/2010/12/02/32260.htm">say</a> he used only lines of Goldman's code that were open source, meaning they belong to the public.&nbsp;</p>
<p>So -</p>
<p style="padding-left: 30px;">Prosecutor Rebecca Rohr asked Paul Walker which aspects of the code were meant to be kept secret from competitors.</p>
<p style="padding-left: 30px;">"I would say all of them," replied Walker, prompting laughter in the courtroom.</p>
<p>He <a href="http://www.courthousenews.com/2010/12/02/32260.htm">explained</a>:&nbsp;</p>
<p style="padding-left: 30px;">The lines of code were so confidential, he said, that the company guarded access by physical security in the building and enlisted additional services of a company called the Information Security Group. Goldman Sachs also monitored firewalls to look for outbound communication, Walker said.</p>
<p>So the code was pretty secret, according to Walker.</p>
<p>But then the defense attorney displayed the code Aleynikov allegedly stole so that the courtroom could see the highlighted sections.</p>
<p>Aren't these sections found in textbooks? Asked Aleynikov's attorney.</p>
<p style="padding-left: 30px;">"It is possible that it may contain open source software," Walker acknowledged.</p>
<p>Oh really? So it's like Aleynikov stole a library book?&nbsp;</p>
<p>But then Aleynikov's defense fell apart a little bit.</p>
<p style="padding-left: 30px;">[His lawyer] suggested that his client only downloaded the Goldman code to separate the "wheat," the "naked open source software" that he used in designing the program, from the "chaff," the modified code belonging to the company.&nbsp;</p>
<p style="padding-left: 30px;">... Because he wanted to&nbsp;"return to the public what belonged to the public."</p>
<p>Impossible, said Walker.</p>
<p>What happened in court on Wednesday is what this case is all about: open-source vs. copyrighted information and who is more malicious: Goldman or Aleynikov.</p>
<p>Aleynikov hopes to convince the courtroom that he's a big proponent of maintaining the integrity of open-source information; that&nbsp;<a href="http://womeninbusiness.about.com/b/2009/02/11/the-difference-between-open-source-and-public-domain-software-applications.htm">some</a> open source programs "operate on licenses mandating that programmers "re-contribute" any changes or modifications back to the public domain," and that's all he was trying to do, according to <a href="http://www.courthousenews.com/2010/12/02/32260.htm">Courthouse News</a>.</p>
<p>Walker "acknolwedged" that's true, but said he didn't have the legal background to offer any more insight.</p>
<p>So whether or not Aleynikov stole proprietary information is one issue. The second is who's the evil one - Goldman Sachs or Aleynikov.</p>
<p>Aleynikov's lawyer says Goldman's case hinges on "hearsay statements from Goldman Sachs employees, who acted "with malice" against his client."&nbsp;</p>
<p>Goldman Sachs went straight to the government, calling them up in the middle of the night and telling them to get on the case ASAP and put Aleynikov in jail, when they could have just resolved the matter in court.</p>
<p>And the Fed's lawyers say Aleynikov <a href="http://www.businessinsider.com/goldman-sachs-vs-sergey-aleynikov-judas-metaphor-2010-11">betrayed Goldman</a>, the employees of which treated him with nothing but kindness, only to be <a href="http://www.businessinsider.com/goldman-sachs-vs-sergey-aleynikov-judas-metaphor-2010-11">stabbed in the back</a>.&nbsp;</p><p><a href="http://www.businessinsider.com/paul-walker-sergey-aleynikov-prosecution-goldman-sachs-computer-code-stole#comments">Join the conversation about this story &#187;</a></p> http://www.businessinsider.com/goldman-sachs-vs-sergey-aleynikov-judas-metaphor-2010-11Prosecutor Busts Out Jesus Metaphors To Make Accused Goldman-Code Stealer Sergey Aleynikov Look Like Judas (GS)http://www.businessinsider.com/goldman-sachs-vs-sergey-aleynikov-judas-metaphor-2010-11
Tue, 30 Nov 2010 15:23:00 -0500Courtney Comstock
<p><img style="float:right;" src="http://static4.businessinsider.com/image/4b4f490c0000000000ad488e/sergey-aleynikov.jpg" border="0" alt="sergey aleynikov" /></p><p>A federal prosecutor is pulling out all the stops to make Sergey Aleynikov, the former quant who's currently on trial for stealing proprietary code from Goldman Sachs, look guilty and conniving.</p>
<p>Before he allegedly committed the legendary crime in June 2009, Aleynikov plotted for months, <a href="http://online.wsj.com/article/SB10001424052748704679204575646780948196768.html">says the prosecutor</a>, and then, on his last day, he committed the ultimate betrayal.</p>
<p>Aleynikov's supervisor and his co-workers had planned to take him out to drinks after work to celebrate his last day. But while they were looking forward to a friendly last happy hour together, Aleynikov was busy trying to cover his tracks.</p>
<p>He had already&nbsp;devised a system to get around Goldman's security procedures, and he had already written a computer program that would download thousands of files and hundres of thousands of lines of source code from Goldman. So that was done. But on his last day he still needed&nbsp;to delete from the database any files that would show what he had done. So in the hours until betraying Goldman&nbsp;</p>
<p>And then, after the trickery, he let his supervisor and co-workers to celebrate his last day like nothing was wrong. The Judas!&nbsp;</p>
<p>As I'm sure you remember, Judas had already determined that he would betray Jesus during the Last Supper, but he still shared in the meal.</p>
<p>Aleynikov betrayed Goldman, and then shared in happy hour drinks with those he was planning to betray.</p>
<p>Further details about the sordid tale can be found by <a href="http://online.wsj.com/article/SB10001424052748704679204575646780948196768.html">clicking here and going to the Wall Street Journal &gt;</a></p><p><a href="http://www.businessinsider.com/goldman-sachs-vs-sergey-aleynikov-judas-metaphor-2010-11#comments">Join the conversation about this story &#187;</a></p> http://www.businessinsider.com/samarth-agrawal-working-on-the-weekends-is-a-red-flag-at-socgen-2010-11Apparently, Working On The Weekends Is A "Red Flag" At SocGen (SCGLY)http://www.businessinsider.com/samarth-agrawal-working-on-the-weekends-is-a-red-flag-at-socgen-2010-11
Thu, 18 Nov 2010 09:16:12 -0500Courtney Comstock
<p><img style="float:right;" src="http://static4.businessinsider.com/image/4bce24117f8b9a0d20c60200/samarth-agrawal-soc-gen.jpg" border="0" alt="samarth-agrawal-soc-gen" /></p><p>During his trial for <a href="http://www.businessinsider.com/samarth-agrawal-socgen-2010-4#ixzz14oxPaC6b">stealing</a> proprietary code from SocGen, Samarth Agrawal explained to the courtroom that right before he allegedly stole the information, his job had changed dramatically.</p>
<p>He was required to work many nights and weekends, he says, because many members of the HFT team had left the bank recently, and Agrawal took on part of the load.</p>
<p>But the bank was uncomfortable with him working in the office, so he had to work at home.</p>
<p>From the <a href="http://online.wsj.com/article/SB10001424052748704648604575620892715553652.html?mod=googlenews_wsj">Wall Street Journal</a>:</p>
<p style="padding-left: 30px;">Working on weekends had become a "red flag" at the company because of prior events, Mr. Agrawal said. A supervisor told him it would be "better that I work at home," Mr. Agrawal said.</p>
<p style="padding-left: 30px;">(The judge overseeing the case didn't allow Mr. Agrawal to discuss what those prior events were.)</p>
<p>Agrawal's explained that he had to work at home, hoping that it would explain <a href="http://www.businessinsider.com/samarth-agrawal-socgen-2010-4#ixzz14oxPaC6b">why</a> pages of proprietary information and handwritten notes about the <a href="http://www.businessinsider.com/samarth-agrawal-soc-gen-trade-secrets-defense-someone-pushed-me-aside-typed-it-into-my-computer-2010-11">code</a> were found "neatly stacked" in Agrawal's New Jersey apartment.</p><p><a href="http://www.businessinsider.com/samarth-agrawal-working-on-the-weekends-is-a-red-flag-at-socgen-2010-11#comments">Join the conversation about this story &#187;</a></p> http://www.businessinsider.com/samarth-agrawal-soc-gen-trade-secrets-defense-someone-pushed-me-aside-typed-it-into-my-computer-2010-11Samarth Agrawal's Ridiculous Defense: Someone Else Physically "Shoved Him," Therefore THEY Stole The Computer Code (SCGLY)http://www.businessinsider.com/samarth-agrawal-soc-gen-trade-secrets-defense-someone-pushed-me-aside-typed-it-into-my-computer-2010-11
Tue, 09 Nov 2010 16:19:00 -0500Courtney Comstock
<p><img style="float:right;" src="http://static2.businessinsider.com/image/4bce24117f8b9a0d20c60200-254-190/samarth-agrawal-soc-gen.jpg" border="0" alt="samarth-agrawal-soc-gen" width="254" height="190" /></p><p>Samarth Agrawal has a piece of evidence that might implicate someone else of stealing proprietary information from his former employer, Soc Gen.</p>
<p>Agrawal is on trial this week for stealing SocGen's proprietary trading information* and attempting to bring it to Tower Research, a rival firm.</p>
<p>According to the defense, Agrawal and his lawyer are going to show a videotape of someone physically shoving Agrawal aside and typing the secret code into Agrawal's computer.</p>
<p>And therefore, they'll maintain, Agrawal didn't actually steal the code.</p>
<p>Here's what, according to <a href="http://www.reuters.com/article/idUSTRE6A448L20101109">Reuters</a>, the lawyer told the court that their defense contains:</p>
<p style="padding-left: 30px;">"A videotape of a person in the high-frequency trading group who actually shoved him (Agrawal) aside" to type the proprietary trading code into Agrawal's computer.</p>
<p>One small problem.</p>
<p>The prosecution, if you'll remember from <a href="http://www.businessinsider.com/samarth-agrawal-socgen-2010-4#ixzz14oxPaC6b">back in April</a> when the lawsuit began, has a video tape of Agrawal printing out the code.</p>
<p>But maybe there's something else we don't know.</p>
<p>Because from the sound of it, Agrawal has been calm and confident during his trial:</p>
<p style="padding-left: 30px;"><span id="articleText">Agrawal, dressed in a dark suit, sat almost expressionless during the opening arguments. When he first arrived to sit at the defense table, he turned back to smile at his parents who traveled from India to attend the trial.</span></p>
<p>*According to our estimated timeline:</p>
<p>Sometime before or during October 2009: Someone shoved Agrawal aside and typed code into his computer.</p>
<p>October 2009: Security cameras caught Agrawal printing out documents that they knew were prop information because his computer activity was constantly monitored by Soc Gen.</p>
<p>November 2009: <a href="http://www.courthousenews.com/2010/04/20/26538.htm">Agrawal resigned</a> from Soc Gen, a month after he allegedly printed out the codes.</p>
<p>March 2010: Agrawal made or received about 115 calls from six large financial institutions. (His contract with Soc Gen had prevented him from working with a competing organization until March.)</p>
<p>One of the calls he received was from an undercover FBI agent, and Agrawal was toast.&nbsp;</p><p><a href="http://www.businessinsider.com/samarth-agrawal-soc-gen-trade-secrets-defense-someone-pushed-me-aside-typed-it-into-my-computer-2010-11#comments">Join the conversation about this story &#187;</a></p>